Professionalism requires independence

What is holding back the major financial advice associations from attaining ‘professional’ status?

What is holding back the major financial advice associations from attaining ‘professional’ status?

The Independent Financial Advisers Association of Australia (IFAAA) welcomes the parliamentary joint committee’s (PJC) recommendation that professional association membership be made mandatory.

We think it would drive excellent outcomes for professionals and for consumers alike.

If the government were to accept this recommendation as is, it would mean that the members of financial services associations who are recognised by the Professional Standards Councils (PSC) are a bona fide profession.

However we don’t think it’s likely to be accepted by the financial services industry in its current format because it would also force a large-scale, rapid culture shift in financial planners to become independent.

And, judging from the size of the IFAAA’s membership, this is not likely to be an overnight experience.

You see, becoming recognised under PSC is a significant undertaking with broad-reaching ramifications – it actually converts a professional association into a regulatory entity.

The PSC has published a paper called “Professionalisation of financial services” (August 2014) that says the estimates of the cost of becoming recognised reach into the millions of dollars.

Certainly this is an impediment for the IFAAA, whose small membership is entirely made up of genuinely independent financial advisers.

However the large professional associations who presumably can afford the cost aren’t recognised by PSC either – not a single one of them.

“Independence and expertise are generally considered key characteristics of a professional.

An industry culture and remuneration model that is seen to interfere with these two traits of professionalism is inherently problematic.” [p17]

So if the external impediment – cost – doesn’t apply then that leaves the large associations the task of resolving their cultural issues because that’s what’s causing the resistance to professionalism.

However most of the financial planning fraternity in Australia is represented in these few, largest associations, which means they will first need to lead their (largely product-aligned) memberships through a significant cultural shift before they are in a position to pursue PSC recognition.

The IFAAA’s membership, though, isn’t held back by the “internal barriers” to professionalism.

It is growing too, at a rate equal to the rising tide of financial adviser awareness of the importance of ‘Gold Standard’ independence – no links to product manufacturers, no commissions and no asset fees.

The membership enquiries we are receiving each day prove this – advisers are realising that conflicts of interest serve no useful purpose and, once removed, free up a practice to become a profitable advice firm.

So what to do?

The detail within recommendation 5 of the PJC’s report makes it a good idea but large associations aren’t likely to radically shift their culture in a short space of time so as to become recognised by PSC and small associations like ours need a lot more members to afford the cost of recognition.